Stoker, P.m. v Pomcol Pty Ltd

Re: MAXWELL PAUL STOKER and CATHERINA LUTSKE STOKER
And: POMCOL PTY. LTD. and PETER WADE
No. QLD G118 of 1984
Trade Practices

COURT

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
Spender J.

CATCHWORDS

Trade Practices - s.52 - representations as to turnover and profit of fish and chip business - deceit - business unprofitable - measure of damage where business abandoned after two months.

Trade Practices Act 1974

James v. Australia and New Zealand Banking Group Ltd. 64 ALR 347

Collier v. Electrum Acceptance Pty.Ltd. (1986) 66 ALR 613

Stack v. Coast Securities No. 9 Pty.Ltd. (1983) ATPR 40-342.

Alati v. Kruger (1955) 94 CLR 216

Toteff v. Antonas (1952) 87 CLR 647

Gates v. City Mutual Life Assurance Society Ltd. (1986) 63 ALR 600.

Gould v. Vaggelas (1985) 157 CLR 215

HEARING

BRISBANE

#DATE 19:3:1987

Counsel for the applicants: Mr. P.J. Lyons, instructed by Messrs. Morris Fletcher & Cross.

Counsel for the respondents: Mr. J.D.M. Muir, instructed by Messrs. Goodfellow & Scott.

ORDER

THE COURT DECLARES THAT:-

The Agreement between the applicants and the first respondent dated 12 July 1984, and the Bill of Sale dated July 1984, were validly rescinded by the applicants on 2 October 1984.

THE COURT ORDERS THAT:-

1. The counter-claim is dismissed.

2. There be judgment for the applicants against the first and second respondents in the sum of $24,187.00, with interest on $16,000.00 at 15% from 12 July 1984 and interest on $8,187.00 at 15% from 2 October 1984.

3. The first and second respondents pay the costs of the applicants, including reserved costs, to be taxed if not agreed.

4. Liberty to mention the matter within 7 days, on 24 hours written notice by one party to the other.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

This application, principally under s.52 of the Trade Practices Act 1974 ('the Act') arises out of the purchase of a fish shop located in the Allsports Shopping Centre at Ashmore on the Gold Coast by the applicants, Mr. and Mrs. Stoker, from the first respondent, Pomcol Pty.Ltd. ('Pomcol'). At all material times, the second respondent, Mr. Peter Wade, was a director of the first respondent and involved in the running of the business of the fish shop in conjunction with other members of his family.

The applicants claim that Mr. Wade made misrepresentations as to the turnover, profit and mark-up of the business in contravention of s.52 of the Act, inducing them to purchase the business and, as a result, they suffered loss and damage. The applicants seek damages against each respondent pursuant to s.82 of the Act in respect of the s.52 contravention and an order against the first respondent pursuant to s.87 of the Act that the agreement between the applicants and the first respondent dated 12 July 1984, and the bill of sale between the applicants as grantors and the first respondent as grantee dated July 1984, be declared void ab initio. In the alternative, the applicants seek a declaration that they have lawfully rescinded the agreement and the bill of sale, and seek damages for deceit. The applicants seek payment by the first respondent or the second respondent of the sum of $16,000.00 paid by the applicant to the first respondent pursuant to the agreement between the applicant and the first respondent dated 12 July 1984, interest on that amount, and an amount for consequential loss sustained by them as a consequence of the purchase of the business, with interest.
The cross-claim filed by the respondents primarily alleges that, in breach of their obligations under the agreement and the bill of sale, the applicants failed to pay any instalments of principal or interest thereunder and to pay the rent punctually in respect of the said premises. The first respondent claims damages for these breaches.
The applicants allege that the representations on which this action is based were made by way of an advertisement published in the "Courier-Mail" on 11 July 1984, a telephone conversation between Mr. Wade and Mr. Stoker on the same day, and during the course of various discussions which took place at or in the vicinity of the shop at the Allsports Shopping Centre on 12 July 1984.
The business was advertised for sale in the "Courier Mail" on 11 July 1984 in the following terms:-

"

OVER $1,000 P.W. NETT Superbly equipped Gold Coast Seafood T/A, grossing over $150,000 p a. cash with v. high profit margins. Full training and trial offered. We are retiring to acreage so will genuinely sacrifice everything for just $54,000 plus s.a.v. or $16,000 dep. and Vendor finance over 3 or 4 yrs. 10% p.a. 075 53 2884."

The respondents admit that the first respondent caused the advertisement to appear in the "Courier Mail" newspaper on 11 July 1984.
The applicants' Statement of Claim alleges that on 11 July 1984, the second respondent orally represented to the applicants that the business was regularly averaging $3,000.00 per week gross turnover with a profit margin of 100%. It does not appear in dispute that a telephone conversation took place between Mr. Stoker and Mr. Wade on 11 July 1984. Mr. Stoker's recollection of the conversation was to the effect that Mr. Wade told him the profit margin on some lines of goods was as high as 600% and that the overall profit margin was 100%. In his evidence, Mr. Wade denied that he had told Mr. Stoker that the profit margin could be as high as 600%. However, he said that he would have indicated to Mr. Stoker either on 11 or 12 July 1984 that the profit margin of the business was on the average 100%.
In regard to the alleged representation that the turnover of the business was $3,000.00 per week, Mr. Stoker said that, during the course of the telephone conversation, Mr. Wade informed him that the business had operated since April 1984 and, when he asked whether the figures were potential or actual, Mr. Wade had said that he had been taking $3,000.00 per week since opening. During the course of cross-examination, Mr. Wade denied at any stage having said that the business was taking $3,000.00 per week since it opened. However, in the light of answers given by Mr. Wade in the course of cross-examination as to the breakdown of figures supplied by him to the applicants, to which reference will shortly be made, it is unnecessary to decide whether Mr. Wade did in fact at this point represent the weekly turnover to be $3,000.00.
The applicants further claim that on 12 July 1984 at the Allsports Shopping Centre at Ashmore on the Gold Coast the second respondent represented to Mr. Stoker, orally and in writing, that the business had a weekly turnover of $3,000.00, a weekly gross profit of $1,500.00, and a nett weekly profit of $1,000.00.
The evidence of the male applicant was that, as arranged during the telephone conversation the previous evening, he and his wife went to the Gold Coast to inspect the shop premises on 12 July 1984. The applicants claim that, during the course of various conversations that took place with Mr. Wade on 12 July 1984, an oral and written breakdown of trading figures was supplied by Mr. Wade which included figures of $3,000.00 gross turnover, $1,500.00 gross profit and $500.00 weekly overheads comprised of $300.00 rent, $100.00 gas and electricity, $50.00 for oil, and $50.00 miscellaneous expenses.
Based on these figures, it is alleged by the applicants that Mr. Wade represented that the business was capable of producing a nett weekly profit of $1,000.00, out of which wages had to be paid. It is further alleged that Mr. Wade indicated to Mr. Stoker that, if he wanted a life of leisure, he could engage the two part-time employees presently working for Pomcol on a full-time basis and still secure an income in the order of $500.00 per week, or work longer hours and take more out of the business.
Mr. Wade gave evidence that in his discussions with Mr. and Mrs. Stoker as to the profits of the business, he produced a document containing a breakdown of the gross takings "on an annualized basis". A document was produced as representing a similar arithmetic calculation to that which was done for the benefit of Mr. and Mrs. Stoker.
The turnover, weekly overhead and nett profit figures alleged by the applicants to have been supplied to them by Mr. Wade, in my view, are confirmed by the answers given by Mr. Wade during the course of cross-examination.

"Mr. Lyons: Now, I think you have already said in your evidence-in-chief that there was a piece of paper prepared, and I put it to you that in fact it showed weekly figures stating the $3000 a week as the turnover or sales of the business. Do you agree or disagree? Mr. Wade: Agree.

Mr. Lyons: And the mark-up of 100 per cent was taken off that so that $1500 was taken off that? Mr. Wade: I would agree.

Mr. Lyons: Right. And out of that mark-up there were certain expenses: $300 for rent? Mr. Wade: Whatever it was at that time, or whatever the rent was, yes.

Mr. Lyons: Well, was it $300?

Mr. Wade: I do not know; I cannot remember now. Mr. Lyons: A figure was allowed for electricity and gas of $100 a week?

Mr. Wade: That would have been based on actual practical experience.

Mr. Lyons: And is that right? Is that the figure that was used?

Mr. Wade: I would not remember.

Mr. Lyons: Oil and cooking oils, about $50? Mr. Wade: That sounds right.

Mr. Lyons: And other costs of around $50, making the total weekly expenses for those items, including rent, of $500? Mr. Wade: Yes, there would have been a collective --- Mr. Lyons: Figure?

Mr. Wade: And including an allowance for unusuals. Mr. Lyons: Of $500?

Mr. Wade: A total.

Mr. Lyons: That was taken away from the mark-up figure?

Mr. Wade: Yes.

Mr. Lyons: Of $1500. And you calculated a net profit of $1000 per week? ---Before staff? Mr. Wade: Before staff? Correct."

The respondents submit that any representations made about what would or might happen in respect of the business in the future were no more than predictions or expressions of opinion. As such they allege no actionable misrepresentation has been proven by the applicants.
Liability for representations as to future events or conduct under s.52 of the Act was considered by Toohey J. in James v. Australia and New Zealand Banking Group Ltd. 64 ALR 347, where he stated at p 372:-

"A statement involving the state of mind of the maker of the statement, eg promises, predictions and opinions, ordinarily conveys the meaning that the maker of the statement had a particular state of mind when the statement was made and that there was basis for that state of mind. If the meaning contained in or conveyed by the statement is false in that or in any other respect, there will have been a contravention of s.52: Global Sportsman Pty.Ltd. v. Mirror Newspapers Ltd. (1984) 55 ALR 25; Australian Ocean Line Pty.Ltd. v. West Australian Newspapers Ltd. (1984) 58 ALR 549."

This question also arose for consideration in Collier v. Electrum Acceptance Pty. Ltd. (1986) 66 ALR 613, where reference was made to the following statement by Fitzgerald J. in Stack v. Coast Securities No. 9 Pty.Ltd. (1983) ATPR 40-342 at 44-119:-

"...irrespective of whether representations as to the future events or conduct constitute promises or predictions, they involve contraventions of the presently relevant provisions of the Act only if it is established that the belief of the respondent was at the time different from what was stated, or that the respondent did not believe what was stated, or was recklessly indifferent as to what was stated. Accordingly, an issue as to the respondent's state of mind at the relevant time is, in fact, central to these proceedings..."

See also Sullivan v. Copas Newnham Pty.Ltd. (Pincus J., 1 September 1986, unreported).

In the context of the advertisement and the oral discussions, and the written breakdown, I do not accept that Mr. Wade was doing no more than expressing an opinion or making a prediction as to what would or might happen in the future. He was making a representation as to the present profitability and viability of the business for sale, and at the time he knew that what he was representing was not the case.
However, if that conclusion be wrong, in my opinion (for reasons that later appear) there was no basis for Mr. Wade to believe that those figures would be achievable, particularly the relationship of turnover to gross profit, and he did not believe those figures would be achieved in the business.
Following the series of meetings with Mr. Wade on 12 July 1984, Mr. and Mrs. Stoker accompanied Mr. Wade to the office of the solicitors of Pomcol, Messrs. Malcolm Tucker & Associates, where a contract for the sale of the business was signed.
The purchase price for the business was $54,000.00, payable by way of a deposit of $16,000.00 and the balance on vendor finance at a flat rate of 10%. While the provision of vendor finance would be regarded as a factor enhancing the price, the flat rate of interest would have the opposite tendency. The contract for the sale of the business indicates an apportionment of the purchase price as follows:-

Plant $25,000.00 Chattels 5,000.00 Fixtures and fittings 10,000.00 Goodwill 14,000.00

Arrangements were made subsequent to the signing of the contract for the commencement of the training period referred to in the advertisement for the sale of the business. It was agreed that Mr. Stoker would return the following Monday to commence training. The task of instructing Mr. Stoker in the running of the business was primarily undertaken by Mrs. Wade and a son, Laurence Wade. Mrs. Wade impressed me as being hard working and capable, and I accept her evidence that Mr. Stoker was lacking in drive and commitment and ability to communicate with customers. His personality, as far as one may judge from the opportunities of assessment of a witness in an environment foreign to him, was listless and negative.
Shortly after the training period had commenced, Mr. Stoker claims he became concerned that the turnover of the business was not as indicated to him in the course of the negotiations for the sale of the business. Having voiced his concern to Mrs. Wade, he states he received an assurance from her that these were quiet days and that the turnover would improve towards the end of the week. Mrs. Wade denied that any mention of dissatisfaction with the turnover was made at that time and stated that the primary concern of Mr. Stoker at the time was the effect that the long hours of the business would have on his social life.
Mr. Stoker gave evidence to the effect that he remained concerned about the apparent poor turnover of the business and sought legal advice as to whether he could "get out" of the contract. Mr. Wade's evidence confirms that Mr. Stoker discussed with him the possibility of "getting out" of the contract but, as the contract was unconditional, he regarded Mr. and Mrs. Stoker as bound to complete the purchase.
Subsequently, Mr. and Mrs. Stoker did in fact decide to go ahead with the contract and settlement took place on 31 July 1984. At settlement, a bill of sale was given by Mr. and Mrs. Stoker over the fixtures and fittings of the business for the unpaid balance of the purchase price. An assignment of the lease of the premises was also executed.
Mr. and Mrs. Stoker proceeded to run the business as from 31 July 1984 with some continued assistance from Mrs. Wade. However, this came to an end after a falling out between the parties. The two female staff, Mrs. Huxsford and Mrs. Flynn, previously employed on a part-time basis by Pomcol, continued to work in the business. Mrs. Stoker did not actively participate in the running of the fish shop, as she was primarily involved in the care of their young child, but did attend the shop from time to time.
The applicants ran the business for a period of approximately two months from 31 July 1984 until 28 September 1984. They allege that, from the very time they commenced operating the business, the turnover was not as represented, confirming the suspicions they had prior to settlement. Ultimately, because they were running at a loss, the applicants ceased trading on 28 September 1984 and the business was abandoned as from that date. The abandonment was without prior notice to the first or second respondent.
As a consequence of the abandonment of the business, the lease of the premises was determined on 8 October 1984. The business was re-advertised for sale a number of times, the first on 3 October 1984, and, in the exercise of its power under the bill of sale, the first respondent sold the goods, the subject of the bill of sale, to a Mr. Larkham in October 1984 for the sum of $12,000.00.
In support of their allegation of misrepresentation, the applicants relied on the trading figures achieved by them in the weeks immediately after settlement. They submit that the gross takings for the first three weeks were of the order of $1600.00 for the first week, $2000.00 for the second, and a little under $1900.00 for the third week, with a trading loss of approximately $200.00 per week. The applicants submit that these figures are quite inconsistent with the turnover of the business immediately preceding the sale being as represented by Mr. Wade.
The oral evidence of the applicants was to the effect that they ran the business along similar lines to the manner in which Mr. and Mrs. Wade conducted the business; in the sense that they opened for approximately the same hours, used the same selling prices as indicated by Mr. and Mrs. Wade initially, purchased from the same suppliers, used the same lines, and employed the same staff. Mr. Stoker admitted that some modifications were made to the business but claimed that this was done with the view to increasing the profitability of the business. Such modifications included improvements to the window display and increased quantities of fresh fish for sale. One significant change made by Mr. Stoker in an effort to improve profitability was to reduce the size of the portions of sea perch sold. This course was abandoned because of the adverse customer response. I regard this aspect as having a bearing on the validity of the comparison of the trading before settlement with the trading by Mr. and Mrs. Stoker, as I do the frequency of purchase of supplies by Mr. Stoker.
The applicants' claim that the business was conducted along similar lines to that of the respondents is supported by the evidence given by two female employees, Mrs. Huxsford and Mrs. Flynn, who continued to work in the business following the change of ownership. Their evidence was to the effect that no significant change in the manner of running the business nor the amount of trading occurred after the applicants commenced running the business. However, Mrs. Huxsford stated that she did notice a degree of downturn in trade some weeks after the applicants took over the business.
The substance of the respondents' defence to the allegations of misrepresentation is that any diminution in the value of the business after 31 July 1984 was as a result of the failure on the part of the applicants properly to manage and operate the business. The respondents claim that any discrepancy between the trading figures they allege to have achieved prior to the sale of the business and those achieved by the applicants subsequently is explicable on the basis of the mismanagement of the business by the applicants and, in particular, the lack of marketing expertise on the part of Mr. Stoker.
It is apparent that Mr. and Mrs. Wade have a degree of business experience in this field, having been involved in two similar enterprises at Woodridge and Beenleigh. In contrast to this, Mr. Stoker, a qualified veterinarian, who was primarily responsible for the management of the business, had no previous experience in running a business of this nature.
The evidence of the respondents emphasised in particular the effect that personal factors, such as customer relations and business attitude, have on the trading figures of the business. Both the evidence of Mrs. Wade and Laurence Wade stressed a lack of enthusiasm on the part of Mr. Stoker during the training period, and his poor demeanour in serving and communicating with customers. In addition, they allege constant complaints by Mr. Stoker in regard to the effect that the business would have on his social life.

Mr. Scherf, a chartered accountant to whom reference will later be made, when questioned as to the competence of Mr. and Mrs. Stoker as managers of the shop, said:-

"...they were competent proprietors of the shop with the experience they had for that type of business. ...you would not say they were very experienced in that business. They were not the top echelon of a proprietor in that type of business but they were somewhere between halfway and average."

and later,

"from my observations of them, they were not the best business people in the world but they were not the worst."

I accept that the modifications made to the running of the business by the applicants and the general demeanour of Mr. Stoker were factors that affected the post-settlement trading figures. I do not accept that these factors account for the difference between the figures represented to the applicants and the trading figures they achieved.
In the course of these proceedings, a significant proportion of the oral evidence concerned the financial records maintained by Pomcol in relation to the Ashmore shop, the reliability of those records, and whether those records were made available to Mr. Stoker for his perusal prior to settlement.
Various documents have been tendered as records of the financial transactions of the fish shop business. These include invoices, bank statements, a record of takings compiled by Laurence Wade, and an exercise book recording the daily takings maintained by Mr. and Mrs. Wade. The figures in these documents do not support the level of trading figures represented by the second respondent. However, it was suggested by the respondents that the invoices do not constitute a complete record, some invoices having been lost or in the possession of a previous accountant. Further, they allege that the bank statements do not accurately reflect the profits of the business, as not all proceedings of the business were banked, and the monies from the three fish shops conducted by the respondents were not necessarily deposited in separate accounts. In addition, Laurence Wade stated in his evidence that the journal compiled by him was not meant to be an accurate record of the takings of the business, but was kept for purely personal reasons.
As to the reliability of the daily takings book, the applicants allege that entries in this book, referred to as the "day book", have been altered so as to represent a state of higher profitability than in fact existed at the time of the sale of the business. At some stage, pages have been removed from the book. Obvious alterations have been made to the figures recorded therein, by way of blotting out previous figures and substituting others.
I am quite unable to accept that the records provide a reliable basis on which to make an assessment of the profitability of the business immediately preceding the sale. The spoilation of the day book is curious, but I am unable to conclude that it is necessarily sinister.
As to the financial records maintained by the applicants while they conducted the business, it would appear that some effort was made on the part of Mr. Stoker, despite his lack of business experience, to keep proper records of the business, including a record of cash register receipts.
At the request of Messrs. Morris, Fletcher & Cross, solicitors for the applicants, a review of the business was conducted by Mr. L.K. Scherf, a chartered accountant with Arthur Young & Co.. Mr. Scherf visited the fish shop on two occasions, 3rd September and 9 September 1984, and examined the books and records of the business, from which a profit and loss account for the period was compiled.
From his examination of the business, a report was prepared by Mr. Scherf, in which he expressed certain opinions in relation to the profitability of the business. The conclusions reached by Mr. Scherf are as follows:-

"1. The average actual weekly gross takings during the period 31 July 1984 to 2 September amounted to $1850 which is a reliable indication of the actual takings prior to the acquisition by M.P. & C.L. Stoker. This is evident from the clear trend of daily sales detailed by us and the additional factor that in the week after acquisition Pomcol Pty.Ltd. carried out a mail drop to ensure continuity of trade.

2. The actual gross profit achieved by the business approximates 35% to 36% which is in accordance with the average % achieved in that industry as reflected in the "Pracdev" report. The actual gross profit trend is further supported by our detailed analysis of stock movements during the week ended 9 September 1984 (copy attached as Schedule A).

3. Due to the conclusion reached by us in 2, we do not believe that Pomcol Pty.Ltd. could have achieved the margins and mark up allegedly represented and detailed in your letter dated 31 August 1984.

4. We believe it likely that the weekly takings after acquisition are indicative of the actual takings before acquisition and the variation between the data allegedly represented by the vendor and the actual performance cannot be attributed to mismanagement on the part of M.P. and C.L. Stoker.

5. We believe that due to our conclusion reached above and the data set out in our report the business could not have achieved the amount of $1,000 net before wages and interest."

I accept Mr. Scherf as a reliable witness and find no reason to doubt the accuracy of the figures compiled by him. His financial assessment of the business appears to form a solid basis for the opinions expressed in his report. While I accept that there are factors subjective to the applicants which might have depressed their takings, and also that there are a number of factors which might affect the volume of takings from time to time, both the figures of Pomcol, such as they are, and the figures actually achieved by the applicants, support the conclusion that Pomcol did not achieve the figures represented to the applicants. I accept the evidence of Mr. Scherf that the difference in trading figures as represented by the respondents and those achieved by the applicants cannot be explained simply on the basis of any ineptitude on the part of the applicants in running the business.
On the whole of the evidence, I am satisfied that the respondents, whilst they conducted the business, did not have a weekly turnover of $3,000.00, a weekly gross profit of $1,500.00, or a weekly nett profit of $1,000.00, but that the results achieved were in fact much less than the figures represented.
In my opinion, the making of the representations as to turnover, and gross and nett profit, by the first respondent, constituted conduct in trade or commerce that was misleading or deceptive within the terms of s.52 of the Trade Practices Act 1974, and that the second respondent was a party to that contravention, pursuant to s.75B of that Act. I have earlier indicated my conclusion that it constituted deceit.
On the question of inducement, Mr. Stoker in his evidence stated that he was influenced in his purchase of the business by factors such as the $1,000.00 nett income, $450.00 nett income after wages, the vendor finance arrangement, the training period, the location of the store, and the profitability of the business as represented by Mr. Wade. The Statement of Claim alleges that Mr. and Mrs. Stoker were induced to purchase the business by the terms of the advertisement, and the oral and written representations by the male respondent to the male applicant that the business had a weekly turnover of $3,000, a weekly gross profit of $1,500 and a nett weekly profit of $1,000.
Mr. Wade in his evidence claimed that Mr. Stoker was most anxious to purchase the business prior to any mention of the profitability of the business. It was submitted by the respondents that Mr. Stoker did not rely on anything he was told. This assertion appears highly unlikely, given first, the terms of the advertisement in the "Courier Mail", and secondly, the fact that the applicants had no previous experience in a business of this nature. Reliance by the applicants on the representations as to gross turnover, and gross and nett profit, is also supported by the evidence that, although they developed some reservations prior to settlement and at one point sought legal advise on the possibility of "getting out" of the contract, they in fact proceeded with the purchase following assurances by the respondents and in the hope that the profitability of the business was as represented.
I therefore find that, on the faith of the representations as to turnover and profit, the applicants were induced to enter an agreement for the purchase of the business, to execute a bill of sale over certain goods as security for the payment of the balance of the purchase price, and to execute an assignment of the lease of the premises.
In my opinion, therefore, the conduct concerning the representations of profitability of the fish and chip business constituted both misleading and deceptive conduct under s.52 of the Act, and deceit.
The appropriate relief in the present case is attended by a number of complicating factors.
The applicants operated the business from the time they entered into possession at the end of July 1984 until Friday, 28 September 1984, when they simply walked away from the business. During that period, there was, I find, a nett loss to Mr. and Mrs. Stoker from the operation of the business of $5,187.00 on gross sales of $14,682.00. Criticism was made of the inclusion of depreciation at $1,333.00 and interest of $950.00 as items of expense but, in my opinion, they are amounts properly to be considered.
This loss was actually incurred, and in my opinion it is not to the point that other proprietors, perhaps more astute or energetic, might have been able to operate the business on a profitable basis. The applicants continued to work in the business for only approximately two months, during which time there was an investigation of the business by an accountant and legal advice was obtained. In my opinion, there was nothing unreasonable in operating the business, albeit at a loss, during that period, nor do I view the payment of rent or other outgoings as amounting to any affirmation of the contract.
On 17 September 1984, solicitors for the applicants wrote to the solicitors for the first respondent. That letter said in part:-

"Our clients have instructed us that, during the course of negotiations leading to the signing of the contract for the purchase of the business, certain representations were made on behalf of your client, which representations induced our clients to enter into the contract. We are further instructed that those representations were false, and our clients have sought our advice in relation to the remedies available to them as a result of the misrepresentations.

We are presently taking our clients' instructions and hope to advise in the near future.

We will communicate with you immediately we have received our clients' final instructions concerning the steps they wish to take.

Our clients' continued operation of the business, pending our communicating with you is not to be interpreted as an affirmation of the contract."

Messrs. Malcolm Tucker & Associates, on 20 September 1984, replied denying any misrepresentation by the first respondent. The applicants closed the business on 28 September 1984 and, by letter dated Tuesday, 2 October 1984, their solicitors wrote to the manager of Pomcol Pty.Ltd.. That letter stated, inter alia:-

"We are instructed, that during the course of negotiations leading to the signing of the contract for the purchase of the business and the collateral Bill of Sale, certain representations were made by you on behalf of the Vendor Company, which representations misled or deceived our clients and induced them to enter into the contract and Bill of Sale.

We are further instructed that those representations were false. Accordingly, our clients, as they are entitled to do, elect to determine the contract and the Bill of Sale and hereby formally rescind them and demand repayment of the deposit of Sixteen Thousand Dollars

($16,000)."

There was no earlier written communication to Mr. Wade of the closing down by the applicants of the fish and chip business, which had occurred on the previous Friday. Mr. Wade said that, on the evening of 1 October 1984, he first heard that Mr. and Mrs. Stoker had left the Ashmore premises and, on the following day, telephoned the owner of the shopping complex and then made attempts to sell the business. This conduct is clearly consistent with Pomcol having the right to sell the business and it looking to Mr. and Mrs. Stoker for any damage suffered by it on such resale.
On 8 October 1984, the lessor determined the lease. Despite a number of advertisements offering the business for sale, the first respondent was not able to sell the business, or the plant and equipment, to a number of persons who were interested. This was primarily because of quite onerous conditions imposed by the owner of the shopping centre and, as a result of the pressure by that owner, Pomcol, at the end of October sold the plant and equipment to a Mr. Larkham for $12,000.00. Mr. Wade said that, while one of the options suggested to him by the owner of the shopping centre was to return to the premises and re-open the shop, and then, if he wished, to resell the business, Mr. Wade told him that that course was impossible because he, Mr. Wade, was working as an owner-builder on a large home at Coomera, his wife was attempting to run two other busy fish and chip shops, and his son, Laurence, had since secured other employment and therefore was unable to assist.
As to the circumstances leading to the sale to Mr. Larkham, Mr. Wade said he was told by the owner of the shopping centre:-

"You have one week, precisely, otherwise the lease is going to be cancelled, and unless you come and reopen the shop yourself, or sell it to Jimmy Larkins (sic), I have no alternative but to move into my property, and if you won't remove it, I shall rip out all your equipment and throw it out on the road."

I do not accept that the abandonment of the business by the applicants on 28 September 1984 meant that substantial restitutio in integrum was impossible and that, as a consequence, the contract could not be rescinded. The first respondent was not in a position at that time to recommence operating the business so as to be able to sell it as a going concern at a later date. Whilst this fact may be unfortunate from the first respondent's point of view, there was no responsibility on the defrauded purchasers to continue to operate the business at a loss so as to enable the vendor to subsequently sell it as a going concern.
The relevant time for deciding whether restitution can be ordered is the date of the purported rescission or, if there be none such beforehand, the date of the commencement of the equity proceedings: Meagher, Gummow and Lehane, Equity 2nd Ed. para.2413. The learned authors refer to Alati v. Kruger (1955) 94 CLR 216, particularly the passage in the joint judgment of Dixon C.J., Webb, Kitto and Taylor JJ. at 223-4. In this case, the contract in my opinion was validly rescinded by the letter of 2 October 1984.
In Toteff v. Antonas (1952) 87 CLR 647 at 650, Dixon J., as he was then, said:-

"In an action of deceit a plaintiff is entitled to recover as damages a sum representing the prejudice or disadvantage he has suffered in consequence of his altering his position under the inducement of the fraudulent misrepresentations made by the defendant."

Of this passage, Mason, Wilson and Dawson JJ. in Gates v. City Mutual Life Assurance Society Ltd. (1986) 63 ALR 600, said at 607:-

"As his Honour then pointed out, it is a question of determining how much worse off the plaintiff is as a result of entering into the transaction which the representation induced him to enter than he would have been had the transaction not taken place. This entitles the plaintiff to all the consequential loss directly flowing from his reliance on the representation (Potts v. Miller

(1940) 64 CLR 282 at pp 297-8; Doyle v. Olby

(Ironmongers) Ltd. (1969) 2 QB 158), at least if the loss is foreseeable (see Gould v. Vaggelas 1985 157 CLR 215 at p 224)."

In this particular case, the first respondent had the opportunity of getting back the business it sold .
There was valuation evidence in this case from both Mr. Scherf and from Mr. Duthie, neither of whose evidence in this respect was very satisfactory. Mr. Duthie's evidence was based solely on the accounts of Pomcol, and is therefore fatally flawed by the fact that I am unable to accept the correctness of those figures. The profit margin implicit in that valuation I find unrealistic. Mr. Scherf's value was $14,313.00, notwithstanding that "a value for the 'plant and equipment' in a profitable going concern would be $21,877." This is because, on the trading figures of the applicants, they would be operating at a nett annual loss of $17,366.00, after allowing for salary to the proprietor of $18,200.00.
I am satisfied that the value of the business was substantially more than Mr. Scherf valued it at. Its value cannot be judged by reference to the "fire sale" circumstances of the transference of the plant and equipment by Pomcol to Larkham in October 1984. The business was then not operating as a going concern, there was no lease, and there were quite subjective restraints imposed by the owner of the shopping centre as to the identity of any person who was to operate the business from those premises.
In Gould v. Vaggelas (1985) 157 CLR 215, Gibbs C.J. said at p 221:-

"There may be cases in which the purchaser continues to trade, either because he has no real alternative or because he has not become aware of the nature of the fraud, and in those circumstances incurs losses which are not represented by the difference between the price and value of the business. There is no reason in principle why the defrauded purchaser should not recover damages for all the loss that flowed directly from the fraudulent inducement (unless, possibly, the loss was not foreseeable). If the purchaser, besides paying more for the business than it was worth, has suffered additional losses which resulted directly from the fraud he ought to be compensated for them. Of course, the court must be satisfied that the loss did result directly from the fraud and not from some supervening cause such as the folly, error or misfortune of the purchaser himself, and must ensure that no additional compensation is given for losses when those losses, or the probability of their occurrence, has already been taken into account in determining the value of the business."

Here the business sold was in essence given back to the vendor to do with it as it chose. In assessing how much worse off Mr. and Mrs. Stoker were by acting on the deceit and deceptive and misleading conduct of the respondents, they are entitled in my opinion to the return of the $16,000.00 paid for the business and, as well, to the actual losses amounting to $5,187.00 incurred over a very short period, during which time, with the aid of accounting and legal advice, their best course of action was being determined.
The applicants also claim to be compensated on the basis of the hours worked by them in the business and in this respect claim a total of 705.5 hours '$7.09 per hour. Mr. Stoker was primarily involved with the running of the business and Mrs. Stoker attended only from time to time. There is no evidence to suggest that Mrs. Stoker, who had the care of their small child, would have been engaged in other remunerative work during that period. There is also something of an ambit claim in the hours worked by the male applicant. In Alati v. Kruger (supra), the final order of the High Court included the return of the purchase money by the vendor to the purchaser after deductions for a number of things, but including reasonable compensation for use of the premises and other property the subject of the contract. Conversely, it seems to me that where, but for the deceit of the vendor, a person would have received remuneration but instead was involved in a loss-making enterprise, that is an item of true loss for which he ought to be compensated. I think such an element ought to be assessed conservatively and I would allow an amount of $3,000.00. I allow interest on $16,000.00 from 12 July 1984 when the deposit was paid, at the rate of 15%, and on the figure of $8,187.00 at 15% from 2 October 1984.

Having heard the parties as to the form of orders, I order as follows:-

1. The Court declares that the agreement between the applicants and the first respondent dated 12 July 1984, and the Bill of Sale dated July 1984, were validly rescinded by the applicants on 2 October 1984.

2. The counter-claim is dismissed.

3. There be judgment for the applicants against the first and second respondents in the sum of $24,187.00, with interest on $16,000.00 at 15% from 12 July 1984 and interest on $8,187.00 at 15% from 2 October 1984.

4. The first and second respondents pay the costs of the applicants, including reserved costs, to be taxed if not agreed.

5. Liberty to mention the matter within 7 days, on 24 hours written notice by one party to the other.

[1987] FCA 120

19 MARCH 1987